The Economist reports, “the average American is much better off now than four decades ago,” and provides useful comparison of the U.S. Census’ and the CBO’s March 2018 estimate of U.S. household income growth between 1979 and 2014. The CBO finds after-tax median household income grew 51% between 1979 and 2014 to $73,200—far higher than the flat growth reported by the Census. Unlike the Census, the CBO’s income estimate includes taxes, non-taxable income such as pension and healthcare benefits, and government transfers such as social security. It adjusts for household size, which is declining over time. It recognizes that the Census method of self-reporting grossly understates benefits. And, like all serious research, the CBO deflates income using the Personal Consumption Expenditure Index (PCE) rather than the Consumer Price Index (CPI). The PCE—a broader measure of expenditures—is updated quarterly, unlike the CPI, which is updated every two years. More frequent updates better gauge the impact of technological change on costs and inflation.
